HUD Information: News

The following news items should be of interest to auditors that perform HUD audits.

Current NewsUPDATE - Final Additional Extension for Certain HUD Lenders and Mortgagees
The Federal Housing Administration (FHA) has granted a final extension until July 31, 2014 for Title I and Title II lenders and mortgagees with fiscal years ending December 31, 2013, January 31, 2014, February 28, 2014 and March 31, 2014 to submit complete recertification packages in FHA’s Lender Electronic Assessment Portal (LEAP). HUD had previously announced an additional extension to July 15th but prior to the announcement of the extension, the due date for those entities was June 30, 2014. LEAP went live on May 27, 2014 but FHA understands that some users are having difficulty with certain functions in the new LEAP system. View the extension announcement.

HUD Extends Filing Deadlines and Other News for Lenders and Multifamily Housing Properties
Lender News
HUD Announces May 9th Go-Live Date for Lender Electronic Assessment Portal (LEAP) and Related June 9th Submission Extension.In a HUD webinar held on March 26, 2014, HUD announced that LEAP would go-live on May 9, 2014. As further described in GAQC Alert #243, HUD Mortgagee Letter (ML) 2013-42 indicates that the deadline for the annual recertification for Title I and Title II lenders and mortgagees with a December 31, 2013, fiscal year-end would be extended 30 days after the go-live date. Therefore, in the recent HUD webinar, HUD announced that an automatic extension to June 9, 2014, would be provided for December 31, 2013, year-end submissions. Because the go-live date will also occur after the annual recertification deadline for lenders with January 31, 2014 and February 28, 2014, year-ends, HUD also announced it will grant individual extensions to June 9, 2014, for those lenders. Note that for lenders with a March 31, 2014, year-end, recertification deadlines will revert back to the normal 90-day submission deadline (i.e., June 30, 2014). To learn more about the updated LEAP system and annual recertification process view the March 26, 2014 HUD webinar titled, FHA Lender System Update, Recertification Process and Timeline Changes, Title I and Title II Consolidation. Access the webinar materials. Access archived recordings of other recently held HUD lender webinars.HUD Issues Guidance on Audit Report Due Date for Lenders with December 2013, January 2014, or February 2014 Year-Ends.On March 27, 2014, HUD issued a memorandum titled, Clarification on Recertification Filing Extension and Audit Report Date. The memorandum addresses a confusing point raised during the HUD webinar around the required date of the auditor's reports. As noted in GAQC Alert #243, HUD staff had previously stated that the due-date extension discussed in Mortgagee Letter (ML) 2013-42 related only to the electronic filing through LEAP, and that the audit(s) should be completed within 90 days of fiscal year-end (i.e., HUD had expected audits to be complete and all reports, other than the LEAP submission agreed-upon procedures report, to be dated no later than March 31, 2014). The new memorandum provides more flexibility by stating that lenders with December, January, or February year-ends should plan ahead in order to complete all applicable recertification steps (certification, fee payment, submission of financial information) by June 9, 2014. Importantly, it also states that there are no interim due dates for the individual steps and that lenders will not be subject to penalties or enforcement actions based on the audit report date.

HUD Issues LEAP Agreed-Upon Procedures Report Preview. In late February, HUD issued a preview of the Agreed-Upon Procedures (AUP) Report, on its "LEAP information" page. This report will be incorporated into LEAP and used by auditors in the agreed-upon procedures engagement associated with the LEAP electronic submission. As noted in GAQC Alert #243, previous to issuing this illustrative report, HUD also released Excel versions of the LEAP Audit Related Questions (ARQ) and the Financial Data Template (FDT). Access the ARQ and the FDT on the "LEAP Information" page.

In advance of the LEAP launch, HUD FHA recently released Excel versions of the LEAP ARQ document and the FDT to enable lenders to create a hard copy of the completed ARQ and FDT prior to the lender's data entry to LEAP. Access the ARQ and the FDT at www.hud.gov/lenders. (Look for the "LEAP Information" link in the Lender Approval and Recertification section.) The ARQ includes various questions about the entity, the audit opinion, and findings. It has separate tabs for supervised large lenders, supervised small lenders, unsupervised lenders, investing lenders, and government lenders (as defined in chapter 7 of the HUD Consolidated Audit Guide (HUD Guide)). However, the tabs for supervised small lenders and government lenders indicate there is no ARQ requirement for those entities. The FDT, which the auditor reports on in-relation-to the financial statements, also includes tabs for the various types of lenders. Each tab includes the various financial statement amounts required to be entered for each type of entity. However, the tab for government lenders indicates there is no FDT requirement for these entities.

Even though HUD has indicated that the LEAP submission deadline has been extended, HUD staff has stated that the due-date extension relates to the electronic filing through LEAP only, and the audit(s) should be completed within 90 days of fiscal year-end. Therefore, auditors are expected to complete the audit(s) and date all reports, other than the LEAP submission agreed-upon procedures report, no later than March 31, 2014. The excel version of the FDT, referred to above, will allow auditors to complete the necessary "in-relation-to" procedures on the supplementary schedule and date the related "in-relation-to" reporting by March 31, 2014. See AU-C 725, Supplementary information in Relation to the Financial Statements as a Whole. The LEAP agreed-upon procedures cannot be completed and related report dated until after LEAP is available.

On November 27, 2013, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2013-42: Extension of Annual Recertification Filing Deadline for Title I and Title II Lenders and Mortgagees with a December 31, 2013 Fiscal Year End. ML 2013-42 informs Title I and Title II lenders and mortgagees with a December 31, 2013 fiscal year end that effective immediately, the deadline for filing their annual recertification package (including submission of financial information) has been extended. This ML was necessary due to the expected timing of HUD's release of a new Lender Electronic Assessment Portal (LEAP) which will replace the Lender Assessment Subsytem (LASS). LEAP will be launched after the March 31st HUD submission deadline for entities with a December 31st year-end. Therefore, ML-2013-42 states that the submission deadline will be extended 30 days after HUD's new LEAP system is implemented. It goes on to state that lenders and mortgagees with a fiscal year end of December 31, 2013 should be prepared to complete the recertification process, including the submission of financial information and fee payments, not later than May 31, 2014. NEWArchive of February 2014, HUD LEAP Webinar Now AvailableIn early February 2014, HUD held a Web event titled, FHA's Lender Electronic Assessment Portal (LEAP) Update, which provides information about the new LEAP system and how it improves business functionality. It also provides more information about recertification process changes and insight into Title I & II consolidation. Access course materials. Access registration and archived version.

HUD Issues Update to the HUD GuideHUD recently issued a revision to Chapter 1, General Audit Guidance, of the HUD Guide. The revised guidance in Chapter 1 applies to all entities required to undergo an audit under the HUD Guide and is effective for audits of entities with year ends ending on or after June 30, 2013.

The transmittal letter for Chapter 1 indicates that the revision is intended to reflect changes in Government Auditing Standards and the clarified auditing standards issued by the AICPA. The last time this chapter was significantly revised was in April 2011. After the 2011 update, the GAQC communicated certain comments and questions to HUD about the chapter. Some of the new revisions to Chapter 1 are addressing the previous GAQC feedback. In January 2013, a more directed change was made to Chapter 1 to eliminate the $2 million major program threshold for FHA-approved lenders (see GAQC Alert #210). That change continues to be reflected in the new chapter.

Some of the changes being made to Chapter 1 are as follows:

The chapter clarifies that the HUD Guide is mandatory for audits of for-profit entities that are subject to HUD's uniform financial reporting standards and related mortgagee letters. Additionally, it clarifies that the HUD Guide requires a financial statement audit and a compliance audit of the major HUD programs and is clearer about the requirements for each, including that the HUD Guide is to be used for the compliance audit portion of the audit.

The chapter clarifies that audits of states, local Governments and not-for-profit organizations are subject to Office of Management and Budget (OMB) Circular A-133, Audits of States, Local Governments, and Nonprofit Organizations, and that auditors should use the OMB Compliance Supplement (Supplement) and not the HUD Guide for those audits. It goes on to state that the HUD Guide can be used to build an audit program in accordance with Part 7 of the Supplement when a program covered in the HUD Guide is not included in the Supplement. Finally, it removes the previous discussion in Chapter 1 of the submission of the single audit reporting package directly to HUD.

The auditor qualifications section of the previous chapter was removed. That section discussed matters such as peer review, licensing, and independence. Even though these items were removed from the chapter, auditors should keep in mind that Government Auditing Standards applies to these HUD audits and includes many of the same topic areas within its general standards. Note that HUD did add paragraph 1-8 to the new chapter to remind auditors about the Government Auditing Standards requirement for peer review and to emphasize that the peer review report does not need to be submitted by the auditor to HUD or the HUD Office of Inspector General unless requested or provided for in another chapter of the HUD Guide.

The previous table that described major program threshold amounts has been deleted and the threshold requirements are now discussed in paragraph format. In general, the information discussed on this topic area is unchanged.

The sampling requirements discussion has been enhanced. Additionally, the chapter now permits the auditor to follow the sampling approach in either Appendix A of Chapter 1 or the AICPA's Audit Guide, Government Auditing Standards and Circular A-133 Audits (GAS-A133 Guide). Note that Chapter 11 of the GAS-A133 Guide (which is the chapter that discusses sampling) will provide useful guidance to auditors even if they are using the sampling guidance in Chapter 1 of the HUD Guide. Finally, the Chapter 1, Appendix A, guidance on sampling was revised to define small populations as 250 items or fewer, to be more consistent with the AICPA GAS-A133 Guide. The previous threshold for small items in the Chapter 1 Appendix was set at 200.

The Chapter was updated to remove material that was duplicative or conflicting with other chapters. It was also streamlined to remove duplicative references or restatements of requirements in Government Auditing Standards or generally accepted auditing standards. Auditors should closely look at paragraph 1-5, Planning the Audit, which includes a number of these types of "streamlining" changes.

Discussion regarding the corrective action plan and Fair Housing and Nondiscrimination requirements were removed from Chapter 1 as these are covered elsewhere in the HUD Guide.

For the most part, there were no substantive changes made by HUD to the reports that were provided by the GAQC. However, during the clearance process, HUD removed a footnote that had been included in the draft illustrative HUD major program compliance and internal control over compliance report. The footnote stated the following: “Note that for entities subject to an audit in accordance with Chapter 7 of this Guide, staff from the HUD Recertification Branch have indicated that when such entities have been approved as both a Title I and a Title II lender, HUD considers the lender to have one major HUD program. Therefore, the auditor’s testing and related reporting should result in an opinion on the one major HUD program.” In speaking with the HUD Recertification Branch Chief about the reason for the footnote deletion, he stated that the deletion was made due to feedback received from other areas of HUD during the report clearance process. He also offered assurance that his office does not expect auditors that followed the guidance in the footnote to take any follow-up action and that there was no plan to reject reports or take any other action towards auditors that followed the guidance in the footnote for their completed 12/31/12 year-end audits or those that are near completion. With regard to audits of year-ends after 12/31/12, the Recertification Branch will work to develop guidance that further explains the impact of the footnote deletion on major program identification and testing. The GAQC will closely monitor this situation and communicate any guidance issued by the Recertification Branch in the future.

HUD Updates Reporting Guidance for all Entities Covered by the HUD Consolidated Audit GuideOn January 24, 2013, HUD updated the reporting guidance in Chapter 2, Reporting Requirements and Sample Reports. The revisions were made to align the HUD guidance with the 2011 Government Auditing Standards issued by the U.S. Government Accountability Office and generally accepted auditing standards, issued by the AICPA. A significant change in the guidance is the elimination of separate reporting on compliance with respect to nonmajor HUD programs. The updated chapter 2 does not include auditor’s reporting examples. Those reports will be added in a future revision (see more about HUD report status in item below).

Chapter 2 will be effective for audits of entities with fiscal years ending on or after March 31, 2013. Early application is encouraged by HUD. In addition to the elimination of nonmajor reporting, the other significant changes to chapter 2 are listed below:

Paragraph 2-1 provides background on the reporting standards and requirements applicable to an audit performed pursuant to the consolidated audit guide.

Suggested auditor’s reports on internal control and compliance were aligned to be consistent with the AICPA’s Audit Guide: Government Auditing Standards and Circular A-133 Audits.

Separate reporting on compliance with specific requirements applicable to fair housing and nondiscrimination was eliminated.

HUD Updates Audit Threshold for FHA-Approved LendersAs noted below, in late 2012, HUD updated its guidance for FHA-approved lenders. On January 24, 2013, HUD released a related amendment to Chapter 1, General Audit Guidance (see page 1-5), of the Consolidated Audit Guide for Audits of HUD Programs (HUD Guide), to remove the $2 million major program threshold for FHA-approved lenders. This change was made in light of the revisions to Chapter 2 of the HUD Guide (see above) that deleted the non-major program reporting requirement. However, since all FHA-lenders must comply with quality control, net worth, liquidity, and licensing requirements, HUD is now requiring that FHA-approved lenders having combined origination and a servicing portfolio of less than $2,000,000, to undergo a full compliance audit that covers only the following compliance requirements in Chapter 7: (1) section 7-5.A., Quality Control Plan; and (2) section 7-5.G., Lender Annual Recertification, Adjusted Net Worth, Liquidity and Licensing. For all other FHA-approved lenders, the compliance audit continues to be performed using the entirety of Chapter 7 of the HUD Guide. This change applies to audits of entities with fiscal years ending on or after March 31, 2013. For those auditors electing early application of the non-major program changes to Chapter 2 of the HUD Guide, this change is to be used for audits of entities with fiscal years ending on or after December 31, 2012.

HUD Updates Audit Guide for FHA-Approved LendersIn December 2012, HUD updated the guidance contained within the Consolidated Audit Guide for Audits of HUD Programs, relating to institutions that participate in the Federal Housing Administration (FHA) insurance programs for Title I property improvement and manufactured housing loans and for Title II single family and multifamily mortgages. A new Chapter 7, FHA-Approved Lenders Audit Guidance, was issued that merged the content of the previous chapter 8 of the HUD Guide with chapter 7 and eliminated chapter 8 from the HUD Guide. The requirements in chapter 7 apply to audits of profit-motivated FHA-approved lenders with fiscal years ending on or after December 31, 2012. The significant changes to the chapter include: